International house price cycles,monetary policy and credit |
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Affiliation: | 1. School of Accounting, Finance and Economics, University of Waikato, New Zealand;2. Facultad de EconomÍa, Universidad del Rosario, Colombia;3. Department of Economics, University of Macedonia, Greece |
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Abstract: | We evaluate three alternative predictors of house price corrections: anticipated tightenings of monetary policy, deviations of house prices from fundamentals, and rapid credit growth. A new cross-country measure of monetary policy expectations based on an international term structure model with time-varying risk premiums is constructed. House price overvaluation is estimated via an asset pricing model. The variables are incorporated into a panel logit regression model that estimates the likelihood of a large house price correction in 18 OECD countries. The results show that corrections are predicted by increases in the market’s forecast of higher policy rates. The estimated degree of house price overvaluation also contains significant information about subsequent price reversals. In contrast to the financial crisis literature, credit growth is less important. All of these variables help forecast recessions. |
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Keywords: | House prices Monetary policy Term structure of interest rates Term premium Credit Recession |
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